What’s Driving the Rally of Early 2023? By, D. R. Barton, Jr.

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A strong start to 2023 has lots of analysts wondering if they need to change their outlook for the year. The major U.S. stock indexes bottomed around October of 2022. It wouldn’t be much of a surprise that fund managers surveyed in November hit one of their highest levels of recession fears, according to Bank of America Global Fund manager surveys (in chart below).

It also wouldn’t take much imagination to guess that they are a bit more optimistic now. In fact, the expectation for a recession in the next 12 months is now 24% lower among fund managers than it was in November.

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The market has been consolidating over the past three weeks in a somewhat tight box, sticking between 4200 and 4000 in the S&P 500:


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But there is little denying that the market has seen a very strong start, with the S&P up more than 8% in 2023 through the close on Valentine’s Day (February 14th).

Where is the Market Getting Its Juice?

It will come as little surprise that technology stocks are making up a large part of the strong start that we’ve seen in 2023. But which other sectors have had a strong first six weeks this year? Here’s is the relative performance for 11 S&P sectors. This chart shows each sector’s performance vs. the S&P 500 (which was +8.16% through February 14th).

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Back in 2008 to 2012, the “risk-on” vs. “risk-off” classification of assets got lots of traction and tech stocks were the prototypical “risk-on” sector. So, it’s pretty interesting that the first six weeks of this year have had really strong performance from Discretionary Spending stocks, Communications Services (Facebook had a big early year rebound) and Technology while Utilities, Health Care and Consumer Staples – the classic risk-off sectors – performed the worst.

How long can this early year “risk-on” rotation last? My crystal ball is a little hazy right now(!), but I’m going to keep a close eye on the six-week box in S&P from our chart above. A breakout or breakdown from the box will be quite important from here…

I always enjoy hearing your thoughts and comments. Send them to me using drbarton “at” vantharp.com

Great Trading and God bless you,


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